Not Yet Sold on SaaS ERP in Manufacturing? Take a Hard Look at Plex Online - Part 1

The software as a service (SaaS) model is now mainstream in many functional areas of business, quite outperforming its on-premise counterpart in this tough economic environment. Consider customer relationship management (CRM), transportation management, talent management, payroll processing, travel and expense (T&E) management, strategic sourcing and procurement, and many other point (or departmental) solutions in many sectors.

The established SaaS providers, Salesforce.com, NetSuite, Workday, Taleo, SuccessFactors, Concur, and ADP are far from being manufacturing-centric. For now, many other renowned on-premise manufacturing ERP providers, such as Oracle, Microsoft Dynamics, Lawson Software, IFS, SYSPRO, and so on and so forth, are missing in action (MIA) when it comes to multi-tenant SaaS for manufacturing. At best, they might offer single-tenant hosted versions of their on-premise software.

Legacy software is a business inhibitor in any environment, and manufacturing companies also want business-related innovation, rather than having to manage IT infrastructures on their own. Traditional on-premise enterprise software is static and inflexible, in sharp contrast to the businesses that run on such software.

On-premise ERP deployments have been problematic in terms of time, cost, and features/functions enhancements. As for the troublesome deployments, an average ERP or supply chain management (SCM) deployment project is close to three years, whereas a whopping 70 percent of ERP/SCM deployments are considered failures (according to Gartner).

Given the fast pace of IT innovation, some on-premise technology can become obsolete before the deployment is completed. But while the total cost of ownership (TCO) far outweighs the benefits, the average lifespan for an ERP/SCM deployment is between 7 and 10 years (according to Forrester). As the best gauge of technology obsolescence, one should ask any on-premise ERP vendor the following question: “How many companies are actually using the latest version of your software?”

In addition, maintenance of on-premise solutions is a nightmare for IT departments, whereby the “hamster wheel” of patches, upgrades, backups, and so on far outweigh the original cost of software. New features and custom requests, which take months to implement, often are not supported in upgrades. Last but not least, in traditional on-premise deployments, not every user has access to the ERP system (especially not the plant-level users), in which case data moves slower and visibility is hindered.

The next logical step would be to look at nimble SaaS startups that don't have the burden of an installed customer base. However, manufacturing is not an easy place to start getting one’s feet wet, as these environments require domain expertise. In fact, many traditional on-premise ERP systems are largely not optimized for manufacturing, as they prevailingly support an accounting-centric model rather than manufacturing-centric model.

In contrast, Plex Online was literally born on the shop floor in 1989. The vendor (at the time called Plexus Systems) was spun off from an ERP implementation project at an automotive supplier (a metal stamping and forging plant) in 1995. Initially, the product was on-premise and based on Progress OpenEdge, sold only to similar automotive manufacturers. In fact, today Plex’ customer base consists of nearly 500 manufacturers (about half of which are automotive suppliers).

Plex switched to on-demand, single-source, multi-tenant architecture in 2000, but it chose Microsoft’s .NET technologies for the rewrite (as Progress wasn’t SaaS-ready at the time). For some time after the vendor re-architected its formerly on-premise client-server system to SaaS, it continued to keep new on-demand customers paying upfront license fees. This has allowed Plex to transition more smoothly to the recurring subscription model and fund its operations, until the company felt comfortable enough to convert every customer to a subscription model and SaaS delivery a few years ago (no new client-server system has been sold since 2000).

Plex claims to have two major groups of customers. One group consists of manufacturers that appreciate the product’s functional fit and comprehensive feature set (especially in terms of quality, traceability, and costing). In other words, the functional fit (the “shop floor DNA”) is so compelling for these manufacturers that the deployment model (within or outside the firewall) is no longer an issue.

The other group consists of the early adopter customers that insist on SaaS and are willing to work with Plex to make its product a fit to support their differentiating strategy of outperforming status quo. These companies want to extend their ERP system to everyone relevant (due to Plex’ site licenses that even include suppliers’ access to the system) and automate top-floor to shop-floor. They also want to track physical reality by capturing and tracking every transaction in near real-time.

Plex customers report the ability to move data faster and make decisions faster due to their ability to see every relevant fact. Also, the Web access enables universal adoption across these companies’ entire ecosystem of trading partners.

Fostering Community-based R&D

In addition to the attraction of no up-front license costs for customers, Plex Online is a “living system” that enables IT systems and processes to change with business. Plex Online is purpose-built for enterprises to fit their business, and yet it can and will be changed on-demand (as required). New features are introduced into Plex Online on a daily basis and implemented at once in the system for all customers.

Still, these chances are not necessarily imposed, since each customer can choose to opt in (or not) to the new functionality according to the company’s needs. Once new features become part of the base application, they are never rendered obsolete by subsequent product releases (or service packs, rather).

Plex also allows a high degree of configuration for individual customers and provides a visual composition environment to allow customers to create their own custom displays and reports. Daily opt-in (or opt-out) enhancements obviate the traditional on-premise upgrade treadmill (i.e., endlessly waiting for the next “latest & greatest software release”), the use of customized code, or simply settling for a sub-optimal “plain vanilla” product implementation.

Plex's research & development (R&D) model has some similarities to the community-driven development (accumulated compounded knowledge) philosophy of free and open source software (FOSS), but without being free of charge. Namely, Plex claims to not have the overhead cost of internal product managers per se, since a vast majority of the new features are driven by online requests from customers.

When a customer asks for some feature, Plex first checks whether there is something similar already available (perhaps called differently, but doing the same function). If not, than that customer pays some affordable fee for the R&D enhancement, and that feature is then available to everyone in the community for free. Some customers may insist on the intellectual property (IP) rights to that feature, but that is rare and it costs much more.

About 28 percent of Plex's revenues comes from these R&D actions and implementation services, and the remaining 72 percent from SaaS subscriptions. Plex calls this methodology Rapid Application Development (RAD) or the process of creating or improving software by involving the user community in all phases of the system development. The vendor's R&D department is a profit center, as customers pay for the majority of R&D. In 2006, Plex claims to have completed over 10,000 requests for new features and customizations.

The vendor is forthright about its challenge of how to communicate and broadcast the hundreds of daily/weekly changes to the software to its customers. To that end, Plex has recently formed a Customer Advisory Board (CAB), while there is also a Wiki-based help system to which end-users have been tirelessly contributing (in a crowdsourcing manner). In addition, the deployment system is tied directly to the documentation system and to the “New Features” thread in the forum.

As a result, Plex is quite open about its list of customer references. The overall customer satisfaction (measured in mid-2007) was reportedly 100 percent among the customers that had been on the system for 6 months or longer.

The next part of this blog series will zoom in on Plex Online’s capabilities. Your views, comments, opinions, particular experiences with Plex and its product are welcome in the meantime. Are you becoming more open-minded and ready for an on-demand manufacturing ERP product?